Sea change

"The global economy may be in the midst of a sea change far bigger than any one country (or group of countries for that matter)."

So concludes Justice Litle from Outstanding Investments as he reflects on a number of ideas seen recently both on this blog, as well as the Daily Reckoning.

Here's how he gets there.

First, there are the comments of Nicholas Nassim Taleb, highlighted in Friday's DR.  As Justice points out, Taleb "extols the virtues of optionality, takes a page from [Raymond] Kurzweil, and directly challenges the Richebächer view.

Then Justice links the thoughts of Taleb with our recent discussions of private equity, sparked originally by a column by Bloomberg's Michael Lewis:

New York Magazine somewhat sides with Michael Lewis–and inadvertently counterpoints Taleb–in this piece called American Roulette (excerpt):

People have put up with all this because it happened so quickly and for the same reason that the great mass of losers in casinos put up with odds that favor the house: The spectacle of a few ecstatic big winners encourages the losers to believe that, hey, they might get lucky and win, too. We have, in effect, turned the U.S. into a winner-take-all casino economy, substituting the gambling hall for the factory floor as our governing economic metaphor, an assembly of individual strangers whose fortunes depend overwhelmingly on random luck rather than collective hard work. And it's been unwitting synergy, not unrelated coincidence, that actual casino gambling has become ubiquitous in America at the same time.

Ironically, it seems to me that Taleb and Lewis and Richebacher all have useful insights.

Taleb is right that America's edge is in its exceptional entrepreneurialism–but the problem with "cheap options" on the whole is that they pay off for only a very smart (or very lucky) few.

Michael Lewis is right that there is an entire class of high compensation, low value-add players (ibankers and their ilk) who are being grossly subsidized by paper asset inflation on a scale that makes American and European farmers look like rank amateurs. And Richebacher is essentially correct in that the loss of traditional economic strengths cannot be made up for by the outsized winnings of a relatively small portion of the economy (i.e. the iPod can't save the rust belt).

In some ways, though, I suspect "what can we do about it" is the wrong question… the global economy may be in the midst of a sea change far bigger than any one country (or group of countries for that matter).   

The Daily Reckoning